“Smart” banking cards catching on everywhere but U.S.

By Todd Lindeman, Published: Jan. 21, 2014

While the United States still mainly uses traditional magnetic swipe banking cards, the rest of the world has been shifting to a different standard — EMV smart chip cards (which stands for Europay, MasterCard and Visa). Established in the early Nineties, chip cards contain an embedded microprocessor that stores and processes encrypted information, making it difficult to copy or counterfeit, unlike magnetic swipe cards. Most in-store or face-to-face purchases require the cardholder to also enter a personal identification number to complete the transaction. Some chip cards may require only a signature. Read related article.

Traditional magnetic swipe card, common in the U.S.EMV “smart” microchip payment cardCARD FRONTCARD BACKMagnetic stripeContact pad with embedded chipCANADALATIN AMERICACARIBBEAN49.2%78.5%ASIA PACIFIC26.7%50.5%AFRICA MIDDLE EAST28.6%76.7%EUROPE ZONE 180.7%94.5%EUROPE ZONE 215.5%73.2%Percentage of all payment cards that have EMV chipsPercentage of all payment terminals using EMV standardMost payment cards in the U.S. only have a magnetic stripe that is swiped at a payment terminal during a trans-action. Most chip cards are “contact” smart cards, which require the card to be inserted into a payment terminal. A magnetic stripe is also on the back, but some countries are removing this to prevent fraud.The United States — a slow adopter of chip cards because fraud rates have been relatively low — mainly uses magnetic stripe and signature for payment authorization, although some banks and card companies now offer chip cards upon request. Starting in 2015, Visa and MasterCard plan to start migrating to chip technology.Outside of the United States., in countries where fraud rates have been historically much higher, such as in the U.K., more than 1.6 billion payment cards, 44.9 percent of all payment cards, are now using chip technology. Card distribution by regionIn millions4017554650372Information recorded by a retailer when card is used:Information recorded by a retailer when card is used:• Cardholder’s full name.• Primary account number.• Card’s expiration date.• Country code.• A unique transaction number, called dynamic authentication, is for- warded to the cardholder’s bank. Merchants cannot link to an account number.Global adoption rates of chip cardsIn 2002, three types of card fraud — counterfeiting, lost or stolen cards, and cards stolen while in transit (mail non-receipt) — accounted for more than $500 million, or 74 percent, of all fraud losses inflicted to merchants and card issuers. As the U.K. fully migrated to chip cards by 2006, the new cards were effective at drastically reducing those types of crimes, which resulted in criminals shifting to other fraudulent activity. By 2012, phone, Internet and mail order fraud (known as card not present), and card identification theft fraud accounted for more than $450 million, or 72 percent, of all losses. Losses attributable to card not present fraud are recently on the decline as online merchants are employing more secure payment verification services, such as 3d Secure by Visa and Mastercard.Chip cards' impact on fraud in the United Kingdom’02’12’02’12CounterfeitingCounterfeitingMail non-receiptCard ID theftCard not presentLost or stolenLost or stolenCard ID theftMail non-receiptCard not present£149£108£21£37£110Currency in millions of poundsAs a percentage of total lossesFraud losses peaked in 2008 aslosses from non-chip transactions such as e-commerce, skyrocketed.LOSSES BY TYPE OF FRAUD, TRENDS SIMILAR AROUND THE WORLDU.S. LAGS BEHIND THE WORLDTWO TYPES OF BANKING CARDS% CHG SINCE 2002£42£55£32£13£246–72%–49%+56%–66%+123%26%26%35%9%5%63%8%11%14%3%E-commerceChip card migrationInternet, mail order and phone fraud. Cardholder and card are not present during transaction.U.S.Data not available because numbers are too low.FRAUD LOSS TRENDSAs countries migrate to chip cards, domestic losses typically decrease. But fraud rates for some countries, such as the Netherlands and France, have actually increased because they either adopted the EMV standard much later than other countries or they experienced significant increases in cross-border fraud.Total cost of card fraud$0.00$0.04$0.08$0.12Total losses from global card fraudFraud losses per $100 value of transactions**Debit and credit cards onlyIn billions of dollars$10$6$2’04’05’12’06’08’10$11.3$4.2The U.S. accounts for nearly 30 percent of all charges — both in-store and online. It had 47 percent of all losses, or $5.3 billion, stemming from all types of fraud in 2012.Rest of worldU.S.UKFranceCanadaAustraliaNetherlandsSpainSingapore–36%U.S.+10%+40%–14%+150%+100%–33%–75%SELECT COUNTRIEShttp://www.financialfraudaction.org.uk/publications/#/9/zoomedhttp://www.financialfraudaction.org.uk/publications/#/12/zoomedhttp://www.theukcardsassociation.org.uk/Advice_and_links/http://www.financialfraudaction.org.uk/cms/assets/1/04102013%20financial%20fraud%20action%20uk%20half%20yearly%20fraud%20figures.pdfhttp://www.frbatlanta.org/documents/rprf/rprf_pubs/120111_wp.pdfhttp://www.datacard.com/downloads/ViewDownLoad.dyn?elementId=repositories/downloads/xml/WP_Adoption_of_EMV_in_US.xml&repositoryName=downloads&index=1http://www.mastercard.us/mchip/faq.htmlhttp://ficousfraudmap.com/05010015020020122011201020092008200720062005200420032002AustraliaNew ZealandGreater ChinaJapanNorth KoreaSouth KoreaMongoliaIndiaSri LankaBangladeshBhutanNepalSouth and South-East AsiaCanadaMexicoCentral AmericaSouth AmericaCarribbeanAfricaMiddle EastLevantAndorraAustriaBelgiumBulgariaCyprusCzech RepublicDenmarkEstoniaFinlandFranceGermanyGibraltarGreeceGreenlandHungaryIcelandIrelandIsraelItalyLiechtensteinLatviaLithuaniaLuxembourgMaltaNetherlandsNew CaledoniaNorwayPolandPortugalRomaniaSlovak RepublicSloveniaSpainSwedenSwitzerlandTurkeyUKAlbaniaArmeniaAzerbaijanBelarusBosnia and HerzegovinaCroatiaGeorgiaKazakhstanKyrgyzstanMacedoniaMoldovaSerbia and MontenegroTajikistanTurkmenistanRussiaUkraineUzbekistanASIAPACIFICAFRICA ANDTHE MIDDLE EASTEUROPEZONE 1EUROPEZONE 20100200300400500600700800Card fraud in the U.S.Chip and pin card in the UKyvonne info@nilsonreport.com020406080100Much like how your SmarTrip or electronic employee ID cards work, 070140210280350070140210280350070140210280350070140210280350070140210280350070140210280350070140210280350070140210280350070140210280350010203040506070800.000.020.040.060.080.100.120.140.162002110.1314.5CNPRest2012278110CNPRest82.128.077.145.033.8117.066.1117.158.2154.5112.2178.3146.7181.7113.2153.291.8135.181.3139.6105.6140.20.000.030.060.090.120.15Europe zone 1UKUSFranceThe UK fully migrated to chip cards in 2006. $0.00$0.04$0.08$0.12’05’12